Hutchison may book $9.6 billion pre-tax gain

Hutchison Telecommunications International (HTIL), which operates mobile-phone networks in the nine markets, said it may book a gain of $9.6 billion before taxes from the sale of its Indian unit to Vodafone Group Plc.

Hutchison Telecom said it plans to pay a special dividend to the shareholders from the proceeds of $11.1 billion sale of a 67 per cent stake in Hutchison Essar to Vodafone.

The sale values the Indian mobile-phone company at $18.8 billion including debt, Hutchison Telecom said in an e-mailed statement on Monday.

Hutchison Essar, India's fourth-largest wireless operator, accounted for almost half of Hutchison Telecom's operating profit of HK$4.8 billion in the first half last year, and 45 per cent of its sales.

Hutchison Telecom, controlled by Hong Kong billionaire Li Ka-shing, is investing in the emerging markets such as Vietnam and Indonesia to replace contributions from India.

"How they re-invest the money, will determine the future share price," Francis Cheung, head of telecommunications research at CLSA in Hong Kong, said before the Hutchison Telecom statement was released. Finding good targets "will be quite difficult as all the good assets have been taken up."

The sale proceeds may be used to fund "suitable investment opportunities," Hong Kong-based Hutchison Telecom said in a statement. "The company has not made a final decision on the use of proceeds from the transaction."

The Hong Kong phone operator said it expects the sale of Hutchison Essar stake to Vodafone, which needs approval from India's regulators and Hutchison Telecom's shareholders, will be completed on 2 April. Hutchison Telecom said a shareholder meeting will be scheduled. The sale of its Indian mobile-phone unit "represents an attractive valuation for the sale group and a premium to comparable telecommunications assets in India," Hutchison Telecom said. The transaction "represents a sizeable premium on the company's investment," Chairman Canning Fok said in the statement.

The company said it is applied for its shares to resume trading tomorrow after being suspended today. The growth of Hutchison Essar, whose subscribers in India almost doubled to 23.3 million in 2006 from a year earlier, drove 57 per cent surge in Hutchison Telecom's stock in the past 12 months, outperforming 34 per cent gain in the benchmark Hang Seng Index.

A dispute between Hutchison Telecom and Indian partner Essar Group failed to stall growth of Hutchison Essar, which has 16 per cent of the Indian mobile-phone market. Strained relations between the partners led Hutchison Essar to cancel plans for a listing last year, HSBC group Plc analyst Tucker Grinnan wrote in a 1 December, 2006 report.

The dispute emanated from the sale of 19.3 per cent stake in Hutchison Telecom by parent Hutchison Whampoa to Egypt's Orascom Telecom Holding SAE in December 2005, Grinnan said.

Essar Group was concerned $1.3 billion sale will affect Hutchison Essar's prospects in India because of Orascom's interests in Pakistan, where the Egyptian company controls the largest mobile operator, Pakistan Mobile Communications, Grinnan wrote.